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Prepaid Accounts

02-06-2013, 06:15 AM

This post is a spin-off from the contract/nocontract post. I can see having a contract for residential accounts that customers are on a payment plan. I would hate to mow a lawn each week and not get paid at the end of the month. They give you the song and dance and tell you the check is in the mail. You could end up mowing their lawn for 6 weeks and not getting paid. With no contract, you have no legal recource.

This post is more geared toward prepaid accounts (new customers). Accounts that are one time service or more so overgrown lawns. You have a feeling that you may get screwed and not get paid after the work is done. Most service companies bill you after the work is done so how do you suggest prepayment without the customer thinking you are some kind of scammer?

I was actually going to start a thread like this because I'm curious too. I think I shot myself in the foot this year.

Before I forget-the answer to your question-> with or without a contract, the customer can still "not pay you". You can add all the mumbo jumbo in there you want, but plain and simple, they pay if they want. Same thing with every other service out there...cell phones, trash, electric, cable...you can even call your credit card company right now and tell them you won't be paying the rest of your debt. In return they take you to court and you settle to pay them half of what you owe, and get your credit score all jacked up.

Last year I billed out at the end of the month. For the most part, everyone paid on time. I had a few who needed reminders every month, and I had 2 that didn't pay. The 2 that didn't pay I stopped service on, and tried numerous times to collect. I sent emails, and called, but got the run-a-round from them. It got to the point where I had to mail out letters to each of them by certified mail. The letters were my last resort (they were by no means "nice"), threatening them with court and police reports. They both paid.

A few weeks ago I sent Thank You cards out to all my customers for last year. In the cards I put a notice of billing changes for this year. I stated everything will be paid a month in advance and any missed payments will be charged for every week missed until they resume service. Basically, if they don't pay, I don't mow. I plan to tell every new customer the reason I do it is so I can keep costs at a reasonable rate, and thats not too much to ask considering other's ask for 6 months up front before service starts. This is where I think I shot myself in the foot....out of my 20 customers, I dropped 2 and only 2 have written back saying they are fine with the changes.

The main reason for the change was because I got tired of chasing money and having people pay when they felt like it. I work hard enough taking care of their property, and don't need another job of collecting my money from them.

How is everyone else billing? Whats the major problems you face? I realize I may have lost a bunch of my customers, so it looks like I'll be hitting the streets again. At least my headache and my worries can be focused somewhere else.

Comment

when i did 100% residential i had about 75% pre-paid accounts and it worked out excellent.
but the catch is all of the homes i serviced where people who were making high 6 digits and low 7 digit incomes.
plus, you need to give them something in return like a discount and i offered 20% off for pre-payment of the entire year and 10% off auto-pay with the credit card on file.
the people that have the money to throw away will gladly write a check for the full amount if it can save them money but the everyday person who is just getting by will not be as receptive because the savings will not out weigh the hardship of spending money that they don't have to spend just yet, like october's services in april.

as far as the people who are slow pay, there is no way they would go with a pre pay. they are slow pay because they are broke @zzes spending more then they make.
the only choice is for people like that is bill ahead instead of behind and discontinue service until payment is made or just kick them to the curb all together.

i know it is easier said then done and i have done all of the above and it works. but as a business you need to set the standards from the start and adhere to them even if it means a little pain in your pocket because once someone gets away with it they will keep doing it.

you always have to remember the reasons as to why you went into business, to make money, money and money and i almost forgot to mention, make money.
as soon as a customer starts making it hard for you to make money or makes it difficult to get your money when you want it then you have no use for that customer.
as long as the money is there you will be reliable, courteous, professional and when it's not you just go away and disappear.

the only business that will continue to deal with a deadbeat is a bank because the deadbeat owes them money and they have no choice but any other business will cut and run when they get paid before the clown can owe them again.

Comment

I have a policy in which I send out billing on the 15th of the month for the following month. If not paid by the 15th of that month service is continued until the end of the month with a percentage for late payment charged each week. If not paid by the end of the month no more service. I have dropped 2 customers this year, (low paying an always late) an pick up 3 (yes all of them in January) I also raised my rates this year, and only had one (late payer) say they don't want service this year. Last year I gave a monthly price to a guy and he pulled out his check book and wrote a check for the entire amount!!!! 2K. That was great but I had to bank it, and then monthly move the money from savings to business( I know me I would have spent it on something stupid)

Comment

I think after reading the posts, I'm sticking to my guns on paying in advance. The headache was just not worth it. I do like the idea of giving a discount if paid in advance, maybe 10% off the first half of the mowing season, then another 10% off the back half of the mowing season????

Thanks for the ideas. Keep them coming!

Comment

Maybe compare it to someone renting a apartment or house. Depends on the customers payment schedule. Look at the prepayment as a deposit. So if you agree on a monthly payment plan the customer has to pay for first month upfront. If the customers decides to terminate the service and the customer is paid up to date, they will get their deposit back.

Comment

I think after reading the posts, I'm sticking to my guns on paying in advance. The headache was just not worth it. I do like the idea of giving a discount if paid in advance, maybe 10% off the first half of the mowing season, then another 10% off the back half of the mowing season????

Thanks for the ideas. Keep them coming!

the only thing i will add to give some more perspective is that when i did the residential homes i was servicing 100 homes at a average of 4k per year and when 75 of them pay you in febuary and march before you have done i thing and you have 300k sitting in your account the 20% discount you gave pails into comparison what you save by having the money in hand ahead of time.

for example, those 75 homes all got a average of 10 yards of mulch each year and that was part of the pre-payment.
at the time if i drove into my supplier it would be about 18.00 per cubic yard but i would pre pay him in march for 750 cubic yards and he was giving it to me for 13.00 per yard.

all 100 homes had fert and weed control as well as plant healthcare programs for their trees and shrubs and i would early order and pre-pay all my chemicals and fert for the entire year and i would get a additional 35 to 40% savings from that.
just those discounts alone offset the discount that i gave and actually increased my profit.
the first year i had everything 100% in place and all the checks came rolling in i was able to see first hand the power of cash when i walked into my local dealer and told him i needed 2 new riders and 3 back packs and what is your best price because i am paying cash.
the guys eyes popped out of his head and he did not know what to do but he gave me one of the best deals i ever got.

the bottom line is when ever you discount anything you have to have something else to offset or neutralize it and as you grow and build up a large customer base and you implement these ideas you have to have them set up to where everything works hand and hand.

if you plan on just giving out a discount to get paid earlier and then go about business as usual then yes it is a waste of time and money but if you put a master plan together it will make your life easier and more profitable.

Comment

the only thing i will add to give some more perspective is that when i did the residential homes i was servicing 100 homes at a average of 4k per year and when 75 of them pay you in febuary and march before you have done i thing and you have 300k sitting in your account the 20% discount you gave pails into comparison what you save by having the money in hand ahead of time.

for example, those 75 homes all got a average of 10 yards of mulch each year and that was part of the pre-payment.
at the time if i drove into my supplier it would be about 18.00 per cubic yard but i would pre pay him in march for 750 cubic yards and he was giving it to me for 13.00 per yard.

all 100 homes had fert and weed control as well as plant healthcare programs for their trees and shrubs and i would early order and pre-pay all my chemicals and fert for the entire year and i would get a additional 35 to 40% savings from that.
just those discounts alone offset the discount that i gave and actually increased my profit.
the first year i had everything 100% in place and all the checks came rolling in i was able to see first hand the power of cash when i walked into my local dealer and told him i needed 2 new riders and 3 back packs and what is your best price because i am paying cash.
the guys eyes popped out of his head and he did not know what to do but he gave me one of the best deals i ever got.

the bottom line is when ever you discount anything you have to have something else to offset or neutralize it and as you grow and build up a large customer base and you implement these ideas you have to have them set up to where everything works hand and hand.

if you plan on just giving out a discount to get paid earlier and then go about business as usual then yes it is a waste of time and money but if you put a master plan together it will make your life easier and more profitable.

That makes a lot more sense. The problem is getting them to prepay! I'm excited about this year though, I'm confident I can sell too.

Some say they charge by the cut. I don't see how this could even be possible. It seems like you'd waste more time piddle paddling around waiting for payment. Does anyone do this?

Comment

I think it's valuable to look at what other industries are doing, and what your customers' experience of pre-paying is.

For example, many of your customers have probably bought something on ebay or another online store. That's pre-paying.

Do they pay their insurance or mobile phone plan as a lump sum at the start of the month or year? That's pre-paying.

My point is, your customers probably already pay upfront for products and services, so there's no reason why this couldn't be sustainable for a lawn care business.

Perhaps you could offer something like $30 if paid upfront, or $35 for weekly or monthly billing (adjust the figures & timeframes as it suits). I'd steer away from calling it a "discount" for pre-paying, but think about it as a "surcharge" for weekly or monthly billing. Make it the way you do business.

In my corporate days, I worked for an insurance company that only accepted upfront payments, and only via credit card or direct debit. No storefronts. No cheques. A tiny amount of potential customers decided it wasn't for them, but the trade-off was zero time wasted on debt collection.

Remember, if these are one-off jobs it is quite possibly a small cost and minimal risk to the customer to pay upfront.

Comment

Payment is the #1 thing I am changing this year. Last year I sent out invoices out the first of the month due by the 15th for the previous month. On the 15th I always had 2 or 3 customers that were late. I always felt that I was wasting at least a 1/2 day every month chasing down over due payment. This year I am requesting prepayment at the rate of 4 weeks per month (basically on months with 5 week they get a free service). If they chose not to prepay then I will need a credit card to make payment at the end of the month.

It will be interesting how this will turn out with my current customers. Like it was stated in this post prepayment is on a lot of things.

Comment

Payment is the #1 thing I am changing this year. Last year I sent out invoices out the first of the month due by the 15th for the previous month. On the 15th I always had 2 or 3 customers that were late. I always felt that I was wasting at least a 1/2 day every month chasing down over due payment. This year I am requesting prepayment at the rate of 4 weeks per month (basically on months with 5 week they get a free service). If they chose not to prepay then I will need a credit card to make payment at the end of the month.

It will be interesting how this will turn out with my current customers. Like it was stated in this post prepayment is on a lot of things.

Let me know how it works out! I'm doing just about the same thing. I got too tired chasing down money, or the stress of not knowing if your even going to get paid. I have a full service quote to do today, I explained to her everything is pay in advance, she said she's more than fine with that as long as the rates are comparable to others. So we'll see how it goes....

Comment

when i did 100% residential i had about 75% pre-paid accounts and it worked out excellent.
but the catch is all of the homes i serviced where people who were making high 6 digits and low 7 digit incomes.
plus, you need to give them something in return like a discount and i offered 20% off for pre-payment of the entire year and 10% off auto-pay with the credit card on file.
the people that have the money to throw away will gladly write a check for the full amount if it can save them money but the everyday person who is just getting by will not be as receptive because the savings will not out weigh the hardship of spending money that they don't have to spend just yet, like october's services in april.

as far as the people who are slow pay, there is no way they would go with a pre pay. they are slow pay because they are broke @zzes spending more then they make.
the only choice is for people like that is bill ahead instead of behind and discontinue service until payment is made or just kick them to the curb all together.

i know it is easier said then done and i have done all of the above and it works. but as a business you need to set the standards from the start and adhere to them even if it means a little pain in your pocket because once someone gets away with it they will keep doing it.

you always have to remember the reasons as to why you went into business, to make money, money and money and i almost forgot to mention, make money.
as soon as a customer starts making it hard for you to make money or makes it difficult to get your money when you want it then you have no use for that customer.
as long as the money is there you will be reliable, courteous, professional and when it's not you just go away and disappear.

the only business that will continue to deal with a deadbeat is a bank because the deadbeat owes them money and they have no choice but any other business will cut and run when they get paid before the clown can owe them again.

I am with you most of my accounts are pay at the end of the month last year i would let them get a month behind and then discontinue service. Well I had to start weeding the slow pay account out now if the current accountys get behind i only let them go 2 weeks and usually I get a call. Hey did you forget me this week and My say hey did you forget about me last month and they pay up if they dont leans work nice as well I usually dont like people to pay for things the havent got yet like your cable provider and the phone company so I dont make people pre pay